Microsoft is looking for still deeper inroads into the living room through the Xbox, and to do that it is launching its own Los Angeles television studio to produce original content, only with an interactive twist.

The technology giant this week released details on its Xbox Entertainment Studios, a 125-employee production studio led by former CBS Television President Nancy Tellem.

"When I worked in traditional TV, we would find ourselves saying things like, 'Wouldn't it be cool if we could add an interactive aspect directly into the show and engage directly with the viewers?' With Xbox, that is possible today," Tellem said at the AllThingsD Dive Into Media conference in Dana Point, Calif.

Huge Changes Coming

Tellem was hired last September as president of entertainment and digital media at Microsoft in part to spearhead the move into creating original interactive content for the Xbox and other devices.

Redmond believes living room entertainment is in its biggest evolutionary period since the transitions of black-and-white to color, and from standard definition to high definition. And it sees a place for the Xbox smack dab in the middle of the change.

There already are more than 76 million Xbox 360 consoles around the world, according to Microsoft. That's three times the number of pre-360 Xbox consoles sold. And a Kinect gesture-and-voice controller now sits next to roughly one-third of those Xbox 360 consoles. The company has sold 24 million Kinect sensors since its launch.

Microsoft almost tripled the amount of TV and other entertainment offerings for the Xbox in 2012. There are now more than 100 custom, voice-controlled TV and entertainment apps on Xbox Live. And the number of Xbox Live subscribers has grown to 46 million, a 15 percent increase over a year earlier.

The Future of TV

2012 also marked the Xbox's biggest year for entertainment and games usage. Users enjoyed more than 18 billion hours of entertainment in 2012, with entertainment app usage growing 57 percent year over year globally. Last year in the U.S., Xbox Live Gold members averaged 87 hours per month on Xbox, an increase of 10 percent year over year.

"We believe that Xbox is being used by more people in the household, during more hours in the day and for more forms of entertainment," said Yusuf Mehdi, corporate vice president of Microsoft's Interactive Entertainment Business. "People are using Xbox in the morning to work out with the Kinect Nike+ Fitness program, kids are watching cartoons, families are enjoying movies, and of course people are playing blockbuster games like Halo 4."

Real Battle Has Not Begun

Rob Enderle, principal analyst at the Enderle Group, told us one could argue that in the game console world, no other vendor is in Microsoft's league. Still, he said, the real battle for the living room has not yet begun.

"There are three big companies chasing this opportunity. One is in the market, Microsoft. The other two are sort of working behind the scenes. Intel talked about its initiative today at AllThingsD, and we know Apple has plans. We just don't know a lot about it," Enderle said. "Given that Microsoft has product in the market that you can buy, you could certainly argue that they are in a league alone."

As Enderle sees it, until other vendors enter the field full force, Microsoft will not be in the heat of the battle for the living room. The TV market is still owned by the cable and satellite companies. Until Microsoft, Intel or Apple can figure out how to break that hold, he said, these are more like skirmishes at the edge of an empire that has not yet been breached.